Adobe: The Early Stage Of GenAI Monetization (Rating Downgrade)


  • Adobe’s stock rallied 15% after 2Q FY2024 earnings, but revenue outlook is below market consensus, showing weak growth rebound.
  • Despite strong growth in RPO, company’s AI monetization plan has not significantly boosted top-line growth and billings, with guided 9.5% YoY revenue growth in 3Q FY2024.
  • The company’s FCF growth has been disappointing, marked by a downward trend in FCF margins.
  • Firefly can be customized by developers to create thousands of asset variations quickly, which could significantly accelerate AI monetization by boosting content creation efficiency.
  • The stock is trading at a premium valuation, with 1.04x of EV/Revenue/g FY2024E exceeding the averages across all software categories.

Photo editing on digital tablet, before and after photos after color correction

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Investment Thesis

Adobe (NASDAQ:NASDAQ:ADBE)’s stock rallied more than 15% after its Q2 FY2024 earnings, driven by depressed market sentiment and better-than-expected earnings results. Despite an optimistic tone from the street regarding this quarter, my view is more

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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